Hayek and Obamacare: Some Context

My colleague Will Wilkinson deflects the claim that because Friedrich Hayek supported some form of a state-run health insurance system, Obamacare should be just fine even to market purists:

Obamacare builds upon and consolidates some of the worst features of the American health care system from a Hayekian perspective, such as (a) It is more or less illegal to sell actual insurance, and (b) There is at best a grievously hobbled price mechanism in the health care market, if you can call it market.

If Hayek stood for anything, he stood for the importance of the informational function of freely moving prices for both individual planning and effective social coordination. (a) and (b) screw it up bad.

The exact set of regulations governing the sale of health “insurance” varies from state the state, but mostly it’s illegal to price insurance policies according to actuarial risk. At the limit, you have states where it is illegal to charge different people different prices and also illegal to refuse to offer coverage to anyone who applies for it. Hayek has a lot to say about price controls and none of it is good.

It’s important to remember in reading Hayek that he wrote a lot of what he did, particularly The Road to Serfdom, at a time when either communism or fascism seemed inevitable. We were going to get one or the other, many people assumed, so we’d better choose wisely between them. Conventional wisdom at the time held that production had just gotten too complicated and too dangerous to leave to the free market. An orderly, rational system of planning was only the way forward under advanced industrialism. Even defenders of the free market, like Joseph Schumpeter, speculated that socialism was inevitable, even if it would certainly leave us worse off.

This wasn’t Hayek’s position, but in his public policy recommendations he did make some desperate compromises all the same. This compromising element is totally lacking in his theoretical apparatus and pretty much impossible to derive therefrom.

If Hayek seems inconsistent, it’s because he really is inconsistent, and the reason for it is a tactical maneuver that expired a few decades ago. Today, the consensus is that at least some parts of the economy must be left unplanned, and the real fighting is about which ones we leave alone. For this we partly have Hayek to thank, but his tactical concessions aren’t doing the free-market cause any favors, if they ever did.

People who only read Hayek for specific policy advice will likely come to grief, because his policy recommendations sometimes do little to illustrate his theoretical insights. People who study Hayek’s theories in the abstract will wonder why on earth he supported national health care in any form — or conscription, or housing subsidies. I’d say he did it so people at the time would listen. Alas.

There’s also a lesson to be taken here for people who support the free market: The moment you make a concession of any sort whatsoever, said concession will promptly be chiseled in granite, and it will endure forever. How many people are there who have only read that little bit of Hayek where he calls for national health insurance? And how many people have heard of the interview he gave late in life, in which he admitted that if he had to do it all over again, he might very well be a market anarchist?